Rolling the Dice - How Risk Aversion Affects Lawsuits

No matter the area of law, there will ultimately be a time where a major choice will need to be made. Do we proceed with trial, or would we rather settle the lawsuit now? This settlement versus trial debate hinges on several factors. How strong is the evidence? How competent is opposing counsel? Who is the judge? What is the likelihood of success? Risk aversion is quietly one of the more important topics rarely discussed outside of discussions directly with attorneys.

Risk aversion is the idea that some litigants are more prepared to risk their case for a greater reward than others. It stems from the old saying that a bird in the hand is worth two in the bush. In other words, would you rather take the sure thing or risk what you have more a superior prize. There will be several points where this decision-tree becomes relevant, but none of them greater than during mediation.

Mediation is required in most counties for most cases. From car accident style personal injury claims to divorces in a family law setting, before you go to trial, most courts will require that you take part in some form of alternative dispute resolution. By the time you reach mediation, the opposing party has likely conducted a thorough investigation. Both parties have some sense as to the benefits and costs of moving forward, and the formal negotiation is a great opportunity to find common ground.

During these settlement discussions, the question of risk will surely arise.

For a personal injury case, the main question might be – if we turn down this $50,000 settlement today with the hopes of winning $100,000 – what are the chances we do better than the offer presented now? Each individual litigant will have a different answer to that question because each client has a different perspective on risk. Money might be a motivating factor for Client A, while an expedient resolution and avoiding trial might be more important for Client B.

During a divorce, the question of money might be similar, but the mediated issue might also concern rights to visitation with a child. If there is a 30% chance that you will do better at trial, is it worth turning down a semi-favorable visitation schedule at mediation? That question depends on how you perceive risk and the specific circumstances surrounding the case.

The issue of risk is ever present in criminal defense more than any others. The concerns of plea bargaining are rampant and perhaps justified. However, for many criminal defendants, pleading guilty to a minor offense to avoid the risk of jail time and prosecution of a felony is a worthwhile tradeoff.

At the end of the day, each case is different, and every client has different priorities. Views on risk aversion are important, and during mediation these questions should be raised, so parties injured in a car accident, getting a divorce, or being subject to prosecution have all the information necessary to make an informed decision. At the law offices of Magnuson Lowell PS, we prioritize information and education for our clients. We strive to provide valuable and creative options that provide each client a better idea about their risk tolerance before mediation and trial. Call today for a free case evaluation!

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